Filmline v. United Artists Corp.

Appeal from a judgment of the United States District Court for the Southern District of New York, John E. Sprizzo, Judge, awarding damages for breach of contract.

Meskill, Kearse and Mahoney, Circuit Judges.

Author: Mahoney

MAHONEY, Circuit Judge:

This is an action for damages resulting from an alleged breach of contract. Defendants appeal from a judgment entered in the United States District Court for the Southern District of New York, John E. Sprizzo, Judge, awarding plaintiffs damages in the amount of $2,189,889 plus $869,900 in prejudgment interest after a trial without a jury. The opinion of the district court is reported at 662 F. Supp. 798 (S.D.N.Y. 1987).

The subject matter of this suit is a letter agreement dated as of February 11, 1982 (the "Agreement"), as amended, between defendant United Artists Corp. ("UA") and plaintiffs Filmline (Cross-Country) Productions, Inc. ("Filmline") and Yellowbill Finance Limited ("Yellowbill") for the production of a film entitled "Cross Country" (the "Picture"). The Agreement called for Filmline to produce the Picture, with interim financing to be provided by Yellowbill, and obliged UA to purchase the Picture if Filmline produced it in accordance with the terms of the Agreement. Provision for the interim financing was made in a separate contract between Filmline and Yellowbill.

The Picture was produced, but UA acted to terminate the Agreement as production drew to a conclusion, asserting unacceptable variation from "an approved screenplay." The district court found that UA's stated reason for repudiating the contract was a pretext, the real reason being that UA sought to avoid a financial commitment to the picture. Filmline, 662 F. Supp. at 804. The district court held that while UA had a right to terminate prior to filming, it waived that right by failing to exercise it in a timely fashion and by participating in the actual filming of the picture. Thus, UA's later repudiation of its obligation to purchase and distribute the picture was deemed to constitute a breach of the contract. We affirm.

Background

The basic events underlying this dispute are the formation of the Agreement between Filmline, UA and Yellowbill for the production of the Picture, an ensuing period during which the screenplay was revised, the actual filming of the Picture which began on May 11, 1982, and UA's repudiation of the Agreement on June 24, 1982 when the filming of the Picture was two days from completion. The Agreement provided that Yellowbill would finance the film, that Filmline would produce it, and that UA would purchase the Picture upon completion. Central to the case is UA's right of approval of the screenplay for the Picture under the Agreement.

Section 5 of the Agreement states that "UA shall have the following approvals with respect to the production of the Picture," specifying the director of the Picture, the screenplay writer, lead actors and actresses, the director of photography, the production designer and the film editor, but not the screenplay itself.*fn1 Section 2 of the Agreement, which deals with development of the screenplay, provides:

UA shall read and submit to [Filmline] such comments, if any, as it may have with respect to each draft of the screenplay. [Filmline] shall cause each draft of the screenplay to be rewritten in accordance with UA's suggested changes. The foregoing procedure shall be repeated until such time as UA and [Filmline] are satisfied with the final screenplay to be utilized for the production of the picture. UA and [Filmline] agree to accomplish the foregoing as promptly as reasonably possible so as not to frustrate the timely production of the Picture.

Section 15 of the Agreement states Filmline's obligation to produce the picture in conformity with the approved screenplay, and UA's resulting obligation to purchase, in the following terms:

Provided that the Picture shall be produced in strict conformity with the approved screenplay and story board (except only for such minor changes as may be required by the exigencies of production), and provided further that [Filmline] has performed all of its obligations hereunder and is not in breach of any representation, warranty, covenants or agreements hereunder, UA agrees to pay to [Filmline] upon full delivery of the Picture . . . a sum . . . in an amount equal to the final certified negative cost of the Picture . . . up to the sum of Two Million Five Hundred Thousand Dollars ($2,500,000). . . .

Similarly, Section 3(b) of the financing agreement between Filmline and Yellowbill provides that "the Film shall be based on the Script, as approved pursuant to the UA Agreement, except for minor deviations of the kind usual in the course of production of a film."

Section 4.01 of UA's "Standard Terms and Conditions" (the "Terms") provides in part:

In the event [Filmline] shall breach or become in default of performance of any material term, condition or covenant contained in this Agreement, or shall breach any representation or warranty contained in this Agreement, and shall fail to cure, correct or remedy such breach or default within thirty (30) days after service of written notice specifying same, . . . United may:

(1) terminate this Agreement in its entirety and be relieved of any obligations to advance or cause to be advanced any further monies or to pay the Purchase Price for the Picture or any part thereof. . . .

All rights and remedies to United under this agreement are cumulative and the exercise of one shall not limit or affect its right concurrently or subsequently to exercise any other rights or remedies as it may have at law, in equity, under this Agreement or otherwise.

Emphasis added.

Section 8.04 of the Terms states that "this Agreement shall be construed and interpreted under the laws of the State of New York governing agreements which are wholly executed and performed therein."

UA entered into the Agreement based upon its evaluation of an initial draft of the screenplay. UA's agent in these activities was Charles Lippincott, vice president of acquisitions, who reviewed the initial screenplay and subsequent alterations. After reviewing the initial draft of the screenplay, Lippincott requested a number of alterations. On April 17, 1982, Lippincott met with Pieter Kroonenberg, one of the principals of Filmline, to discuss a revised draft of the screenplay dated April 13, 1982. Lippincott expressed his dissatisfaction with the April 13th screenplay and repeated requests for certain modifications. On April 19, 1982, UA (for whom Lippincott acted), Filmline and Yellowbill entered into an amendment (the "April Amendment") to the Agreement which provides in part:

This will confirm the approval by UA of the following elements:

(a) The April 13, 1982 revised screenplay, as further revised in accordance with the changes agreed to by UA and Filmline on April 17, 1982, provided that it is acknowledged that UA reserves the right to request minor changes to said screenplay prior to the confirmed May 11, 1982 start date of principal photography. . . .

The April Amendment also included approvals of the casting as to four characters, the "story board as to Scenes 1B through 35C," the director of photography, the production designer and the film editor (subject to the later enlistment of a ...

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